Insurance in Estonia before 1940: Fire Funds to Eesti Lloyd

In brief. Before 1918 insurance in Estonia had two sources. In the towns, Baltic Germans founded mutual fire insurance societies on Western European models; in the countryside, after the reforms of the 1860s, rural municipalities set up mutual fire funds (vallaseltsid, popularly tulekassad). Most commercial business was in the hands of Russian and foreign joint-stock insurers, and the Russian state repeatedly intervened through monopolies and bans. Estonians founded their own insurers in the early 20th century. The Republic of Estonia (1918–1940) built a diverse market of joint-stock companies, mutual societies and over 360 parish fire funds, regulated from 1936 by the Insurance Institutions Act (kindlustusasutiste seadus). The Soviet regime nationalised the entire market in 1940.

Under the Russian Empire

Medieval guilds and craft associations in Estonian towns ran mutual aid funds that helped members after fires with building materials, food and money.¹ In the second half of the 18th century Baltic Germans founded mutual fire societies in the towns. The first in the Russian Empire on a Western model was the First Riga Mutual Fire Insurance Society of 1765. A mutual society was founded in Tartu in 1865 and the Tallinn Suburbs Mutual Fire Insurance Society in 1866, regarded as the first insurance society in whose foundation Estonians took part.² Some sources give a different founding year for the Tallinn society.³

Mutual societies had lower running costs and premiums than joint-stock companies. Losses were shared among members, who could be called on for supplementary contributions after a great fire. This encouraged care with fire and financed fire brigades, but small societies could be bankrupted by a single large fire and were refused reinsurance by joint-stock insurers.⁴

The Russian state intervened heavily. In 1786 an insurance office attached to the State Loan Bank was given a monopoly, and insurance with foreign insurers was prohibited to keep money in the country. In 1827 the First Russian Fire Insurance Society received exclusive rights in several provinces, including the Baltic provinces of Estland, Livland and Courland, until 1847. Insured houses carried metal plates showing the insurer, a practice that spread to provincial and municipal societies.⁵ After the monopolies ended, the joint-stock insurers formed a tariff cartel in 1875, which in turn encouraged the growth of mutual societies.⁶

Parish fire funds

The emancipation of the peasants (Estland 1816, Livland 1819) and the purchase of farms in the mid-19th century created many new owners who needed to protect their buildings.⁷ The 1864 decree on zemstvo insurance introduced compulsory mutual insurance of rural buildings in the Russian interior; owners were allowed to choose their insurer, and many insured locally.⁸ The result was the rural mutual fire funds. The first appeared in Tartu County in 1865; there were 29 in 1885, 189 in 1895, 236 in 1905, 296 in 1915 and 364 in 1927, with about 60,000 members.⁹

Their development mirrors the history of insurance in miniature: from in-kind obligations (members delivered timber and helped rebuild), through collection of money after the fire according to the value and fire risk of each member's buildings, to annual advance contributions and, from the 1920s, reinsurance and central coordination. In 1927 about 5% of funds still used in-kind obligations, 30% collected contributions after the loss, 40% collected annual premiums in advance and 25% collected in advance and reinsured.¹⁰ In the interwar period the funds also organised rural fire prevention: they imposed fire safety rules, inspected chimneys and supported volunteer fire brigades.¹¹

Estonian insurers and the Republic, 1918–1940

Until 1918 about 20 Russian and foreign joint-stock insurers operated in Estonia. They were replaced during the German occupation by German companies, most of which the Estonian government closed down in 1919–1921.¹² The insurance society "Eesti", founded in Tartu in 1907 with the declared aim of providing insurance independent of foreign influence, became one of the leading domestic insurers.¹³ In 1919 Eesti Lloyd was founded in Tallinn; its founders included Konstantin Päts, later Head of State and President. It insured workers and servants against accidents and wrote life insurance.¹⁴

Insurance could be carried on by joint-stock companies, cooperative (mutual) societies and municipal mutual fire funds. The number of insurance societies fluctuated between 17 and 20. Fire insurance, the largest class, grew until 1930 and declined during the economic crisis from 1931, particularly in the countryside.¹⁵

The first Estonian insurance statute, the Insurance Institutions Act, was enacted by decree of the Head of State in 1936 and entered into force on 1 June 1936 according to the textbook. It contained 113 sections on general rules of insurance business, supervision and liquidation of insurers.¹⁶ It was a supervisory statute rather than an insurance contract act. The next Estonian insurance act was adopted only 56 years later, in 1992.

Nationalisation

In 1940 the Soviet authorities nationalised 12 mutual insurance societies, 7 joint-stock insurers and 326 municipal fire funds.¹⁷ The list of insurers to be nationalised was published in the State Gazette (Riigi Teataja) on 28 July 1940.¹⁸ The tradition of mutual insurance, which had been strong in Estonia, was broken. Although the Estonian Insurance Activities Act (kindlustustegevuse seadus, KindlTS) now allows an insurer to operate as a commercial cooperative, the Estonian market today consists almost entirely of joint-stock companies and branches of foreign insurers.¹⁹

Related pages

• History of insurance: overview
• The Soviet era and the restoration of private insurance
• Insurance organisations
• Estonian insurance contract law

References